Question
Antioch Extraction, which mines ore in Montana, uses a calendar year for both financial-reporting and tax purposes. The following selected costs were incurred in December,
Antioch Extraction, which mines ore in Montana, uses a calendar year for both financial-reporting and tax purposes. The following selected costs were incurred in December, the low point of activity, when 1,000 tons of ore were extracted:
|
|
|
|
Straight-line depreciation | $ | 20,000 |
|
Charitable contributions* |
| 5,000 |
|
Mining labor/fringe benefits |
| 135,000 |
|
Royalties |
| 145,000 |
|
Trucking and hauling |
| 144,970 |
|
*Incurred only in December.
Peak activity of 2,300 tons occurred in June, resulting in mining labor/fringe benefit costs of $310,500, royalties of $301,000, and trucking and hauling outlays of $174,970. The trucking and hauling outlays exhibit the following behavior:
|
|
|
|
Less than 1,000 tons | $ | 129,970 |
|
From 1,0001,499 tons |
| 144,970 |
|
From 1,5001,999 tons |
| 159,970 |
|
From 2,0002,499 tons |
| 174,970 |
|
Antioch uses the high-low method to analyze costs.
Required:
- 1. Classify the five costs listed in terms of their behavior: variable, step-variable, committed fixed, discretionary fixed, step-fixed, or semivariable.
- 2. Calculate the total cost for next February when 1,300 tons are expected to be extracted.
- 3-a. Is hauling 1,000 tons with respect to Antiochs trucking/hauling cost behavior cost-effective?
- 3-b. Given the current scenario at what number of tons can cost-effectiveness be achieved?
- 4. Distinguish between committed and discretionary fixed costs. If Antioch were to experience severe economic difficulties, which of the two types of fixed costs should management try to cut?
- 5. Speculate as to why the companys charitable contribution cost arises only in December.
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